J-R, the forecasts came from the analyst - they're not mine.
Here's how I understand the explanation.
In fiscal 1997, CGI's EPS was 0.20
In fiscal 1998, the estimated EPS is 0.49
In fiscal 1999, the estimated EPS is 0.95 (actually Desjardins says 1.15, but we'll use .95 for our calculations)
The current P/E based on 1998 is $35/0.49 = 70
The P/E based on 1999 is $35/0.95 = 36
Peter Lynch values growth companies as follows - when a company's P/E is equal to its growth rate, it is fully valued and time to look at moving on to something else. The Motley Fools (Gardiner Brothers) go one step further and evaluate the P/E against the growth rate - they say that if a stock's P/E is .5 of growth rate or less, the stock will likely double, so they buy such stocks.
In our case, CGI's growth rate in EPS from 1997 to 1998 will be .49/.20 or 145%. Therefore the Fool Ratio is 70/145 = or .48 (i.e. favourable)
Now looking at 1999, we see a P/E of 36 with a growth rate of .95/.49 or 93%. The Fool ratio is therefore 36/93 = .38 (i.e. even more favourable)
According to the analyst, the industry average in CGI's sector is .7 so to him, CGI looks like a very good buy.
Hope this helps.
P.S. - what's a chartist like you doing looking at fundamentals? :-) |
